KCSE Business Studies Topical Questions and Answers

Factors influencing decisions on what goods and services to produce

30/3/2022

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Factors influencing decisions on what goods and services to produce.

Profitability – people produce goods whose return are faster and higher
Government policy – Trade produce goods that are allowed by the laws of the country
Availability of resources – Goods produces should be the one that have adequate resources
Level of competition – People produce goods whose competition is not there as compared with the one that have shift competition
Market – Goods which have market are greatly produced
Cost of production – Goods and services produce should be cheaper in terms of overall cost

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Reasons justifying the use of economic barriers to control free trade.

30/3/2022

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Reasons justifying the use of economic barriers to control free trade.

Protection of strategic industries – food and clothing industries.
Creation and protection of employment – restrictions discourages imports thereby, encouraging, establishment of industries opportunities locally.
Prevention of dumping – to rid disposal of cheap, substandard and inferior goods.
Protection of local infant industries – young growing industries are unable to complete favourably with established industries.
Preservation of balance of trade deficit in a country.
Expanding market for local products – economic barriers creates large market for locally produced goods and services.

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Name four possible barriers to international trade

5/11/2021

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Name four possible barriers to international trade. (4mks)

Four possible barriers to international trade.

Language barriers.
Political differences among nations.
Wars.
Trade laws and regulations in different countries hinder international trade.
Trade restrictions imposed by governments.
Differences in currencies.
Poor means of transport and communication.
Long distances.
Cultural differences.
Physical barriers e.g mountains, rivers, lakes and oceans
Ignorance

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Give any four conditions that a country’s terms of trade is likely to improve

22/9/2021

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A country may experience an improvement in terms of trade if:

Prices of imports decline while those of exports remain constant
Prices of imports remain constant while those of exports increase
Price of imports decline while those of export increase
The prices of both the imports and export increase where the rate of increase for exports is higher than of imports.
Both prices decrease but the decrease in price of reports is lower than that of imports

Give any four conditions that a country’s terms of trade is likely to improve

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Explain five benefits that Kenya may get as a member of C.O.M.E.S.A.(10 marks)

21/12/2020

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Explain five benefits that Kenya may get as a member of C.O.M.E.S.A.

Benefits that Kenya may get as a member of COMESA include:

Free flow of goods and services.
Expanded market for goods and services.
Reduced costs of operating businesses as a result of increased scale of operation.
Production of competitive/quality goods and services.
Possibility of political cooperation.
Increased variety of goods to choose from.
Improved infrastructure to facilitate conduct of business.
Creation of employment opportunities due to increased trading.
Attracts investment due to greater demand.
Lower prices of goods due to abolition of tarrifs.
Encourages specialization where countries enjoy comparative advantage.

Explain five benefits that Kenya may get as a member of C.O.M.E.S.A.(10 marks)

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Explain five disadvantages that a country would suffer if she restricted trade with other countries.

20/12/2020

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Explain five disadvantages that a country would suffer if she restricted trade with other countries.

Disadvantages that a country would suffer if she restricted trade with other countries include:

Development of monopolies - Monopolies may emerge due to lack of competition from possible rivals exposing consumers to exploitation.
Reduced consumer choice - trade restrictions reduces the variety of goods and services available to consumers leading to lower standards of living.
Trading conflicts - trading partners are likely to retaliate, leading to conflicts between the countries involved.
Poor quality goods - protected domestic industries may produce poor quality goods and services due to lack of competition from established industries.
Lack of growth of infant industries - overprotected infant industries may not grow from infancy always seeking for continued protection.
Reduced production capacity - this results from the reduced market as a result of the trade restrictions hence under-exploitation of available resources.
Misallocation of resources - it may force a country to use her resources in areas where she has no comparative advantage.
Costly to the government - this may happen if measures like subsidies are used to enhance restrictions by encouraging import substitution.
Encourages smuggling which leads to entry of counterfeit goods and loss of government revenue.

Explain five disadvantages that a country would suffer if she restricted trade with other countries.

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Explain five disadvantages that a developing country may suffer by liberalizing foreign trade. (10 marks)

18/12/2020

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Disadvantages that a developing country may suffer by liberalizing foreign trade

Disadvantages that a developing country may suffer by liberalizing foreign trade include.

May lead to dumping of inferior products into the country.
May cause over exploitation of resources leading to their depletion.
May lead to loss of jobs due to closure of firms that cannot cope with competition.
May contribute to worsening balance of payment situation as developing countries have fewer! lowly valued exports.
Cultural values and beliefs may be eroded due to unrestricted trade.
Entry of harmful goods. Goods with harmful ingredients such as beauty creams and drugs may find their way into the country.
Slow economic development. The country may stagnate due to over dependence on other countries for supplies.
Brain drain. The developing country looses skilled personnel to better developed countries who provide better pay and amenities.

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Outline four reasons why countries may trade with each other.

16/12/2020

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Outline four reasons why countries may trade with each other.

Reasons why countries may trade with each other include:

to sell their surplus
to enhance bilateral ties
to acquire what they are not able to produce
protect special interest
to improve the quality of life of their citizens/improve access to a variety of goods

Outline four reasons why countries may trade with each other.

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Explain five factors that an entrepreneur would consider when evaluating a business idea.

16/12/2020

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Explain five factors that an entrepreneur would consider when evaluating a business idea.

Factors that an entrepreneur would consider when evaluating a business idea
include:

The profit margin to be earned from the investment. There should be a reasonable profit from the investment in order to cover all the operational expenses and get surplus.
Existing attitudes, practices and beliefs of the target market. The new product, service or business idea must be in line with the people’s attitudes, practices and beliefs if it has to be accepted and hence marketed.
Availability of appropriate technology. The technology to be used in producing the product or offering the service should be efficient and cost — effective.
Size and availability of the market.
Possibly of pre-testing (trial use)Jt should be affordable to allow customers to try out the new product first without having to purchase it and get feedback from them.
Availability of an effective channel of distribution. This will ensure the product is available ¡n the market do that customers buy it when they decide to.
Ability of the product to satisfy the immediate need of the buyer. The new product must be of tangible or felt benefit to the buyer hence making it very attractive.
Ease of usage. The new product or service should be easy for the buyers to understand and use since they may fail to buy the product if it is complex and difficult to use.
The level of competition. The entrepreneur should look at the systems used by the competitors and strategise accordingly. ‘
The payback period. This should be reasonable to allow the investor break even and recoup the capital invested.
The risks involved. These should be manageable and minimal to avoid unnecessary losses.

Explain five factors that an entrepreneur would consider when evaluating a business idea.

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State the meaning of the following terms of sale as used in international trade:LOCO,C.I.F,F.A.S and F.O.Q

15/12/2020

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State the meaning of the following terms of sale as used in international trade:LOCO,C.I.F,F.A.S and F.O.Q

Terms of sale as used in international trade.

Loco - This means the price of goods quoted at the exporters warehouse/premises. The importer bears the cost of packaging and transport/factory price/ex-works
C.LF. - Cost Insurance and Freight. Cost of Insurance and freight included up to the port of entry.
F.A.S. - Free Alongside Ship. Costs incurred on goods up to the point where they are ready to be loaded onto the ship.
F.O.Q - Free on Quay. This means the price quoted include all costs incurred up to the quay.

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Explain five measures that the government may take to improve the volume of exports ( 10 mks)

14/12/2020

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Explain five measures that the government may take to improve the volume of exports

Measures that the government may take to improve the volume of exports

Creation of export processing zones- Where the producers/exporters enjoy a Variety of inceptives/accept e.g. of investors as explanation.
Manufacturing under bond to encourage local manufacturers to produce exclusive for export.
Export compensation schemes/ subsides schemes by refunding a specific % age of value of goods/services exported/meeting part of the cost of production for exports.
Providing information on international markets through publications/seminars/workshops/educational tours
Financing those producing for exports by availing credit/loan to exporters.
Participating in international trade fairs/exhibitions/shows to expose the exporters their goods/services
Use of commercial attaches/other government agencies to promote exports/advertise/look for markets for exports.
Customs drawbacks by refunding tax on imported ran materials used to produce exports.
Devaluation of currency to make exports cheaper/increased demand
Improved infrastructure to facilitate export production/export trade/accept eggs of infrastructure as a mentioned
Entering into trade agreement/blocks/integration/groupings/cooperation to give preferential treatment to a cooling exports
Improving on quality/standardization/packaging to make exports more attractive Export credit guarantee scheme to insure/ compensate exporters against risks when selling overseas.
Export credit guarantee scheme to insure/compensate exporters against risks when selling overseas.
Tax rebates/ lowering of duties on exports/reduction of taxes on inputs used to produce goods for export to make them cheaper/increase their demand/to reduce cost of production.
Improve /adopt modern technology in order to increase the volume of goods for exports.

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Outline four ways in which commercial attaches may promote trade between their country and other countries ( 4 marks)

14/12/2020

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Outline four ways in which commercial attaches may promote trade between their country and other countries

Commercial attaches promote trade in the following ways:

Assisting business people to participate in external trade fairs/2 x hibitions
Conducting market research for local products
Looking for new markets
Educate local traders on trade opportunities
Organize educational tours to abroad
Inform exporters on the standards/price of goods/services
Promote good relationships among trading countries
Publish and advertise their countries export
Keep statistics of products
Make detailed report in commercial activities
Select buyers/agents/distributors of country
Carry out market research
Improve the company’s image

Outline four ways in which commercial attaches may promote trade between their country and other countries ( 4 marks)

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Explain six circumstances under which a country may restrict international trade. (12 marks)

13/12/2020

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Explain six circumstances under which a country may restrict international trade.

Circumstances under which a country may restrict international trade.

Where there is need to protect local/infant industries which may not withstand competition foreign established foreign industries.
Where there is need to control dumping to prevent adverse effects on the economy.
Where balance of trade/payment continues to deteriorate to reduce payment on imports.
Where goods are hazardous/harmful for consumption in order to protect the health of consumers.
Where goods involved are a security risk to the country to ensure peace and stability.
Where it is necessary to counter the actions of trading partners as a retaliatory measure.
Where there is need to avoid imported inflation arising from overpriced imports.
Where it is politically expedient to do so in order to promote good governance in another country.
Where there is need to safeguard local employment which may be lost through entry of cheap imports.
Where there is need to avoid overdependence on imports which may lead to political blackmail.
Where there is need to avoid overexploitation of resources which may cause their depletion.
Where there is need to build reserves of strategic commodities to avoid shortages in meeting local demands.

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Explain five benefits which may accrue to Kenya by being a member of the African Development Bank (AFDB). (10 marks)

12/12/2020

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Benefits which may accrue to Kenya by being a member of the African Development Bank (AFDB)

Benefits that Kenya may enjoy by being a member of the African Development Bank (ADB/AFDB) include:

The country will obtain loans/credit for economic /social advancement/development.
Kenya will get technical assistance /expert advice/consultancy to strengthen and execute development programmes.
Kenya will get assistance in policy coordination / development formulation for effective implementation of projects.
The country will get technological assistance to utilize its economic resources.
The country will enjoy cooperation/support from regional economic institutions in Africa/internationally.
The country will gain from capital funding for public/private investment that boost development.
Promote better/effective use/management of funds/resources/accountability through oversight/monitoring by AFDB agencies.
Boosts the country’s credibility/image/credit standing - thus enabling it access more funds (from international lenders/development partners) since AFDB can guarantee the country for funding.
Kenya can get international platform/opportunity /forum - to promote its development agenda.
Cheap affordable credit/easy terms - due to low interest rates/longer repayment period.

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State four reasons why countries may decide to trade with each other.(4mks)

11/12/2020

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State four reasons why countries may decide to trade with each other.

Vertical Divider

Reasons why countries may want to trade with each other is to

Exchange their surpluses
Acquire goods/ they are unable to produce
Enhance international relations
Acquire much needed foreign exchange
Exchange skills and knowledge of producing certain goods
Acquire a variety of goods/ services
Acquire quality goods
When its cheaper to import
Create employment
Exploit resources optimally as there is
Enhance factors mobility
Wider market

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Explain five disadvantages that a country may experience from imposing trade restrictions on trading partners. (10 marks)

10/12/2020

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Explain five disadvantages that a country may experience from imposing trade restrictions on trading partners.

Retaliation by other trading partners/countries leading to reduction in exports.
Low/foreign exchange earnings due to reduced exports.
Curtailed transfer of technology/factors of production that may lead to poor quality production/low quality of products/low output.
Lack of variety of/limited products which restricts consumers’ choice.
Poor international relations which may lead to conflicts among consumers/may not get assistance in times of calamity/needs.
Leads to increased unemployment due to reduced trading activities.
May suffer balance of payment as a result of reduced income of exports.
Reduced competition leading to low quality goods/services/inefficient firms/exploitation of consumers.

Vertical Divider

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Name the documents described by the statements given below as used in International Trade:

9/12/2020

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Name the documents described by the statements given below as used in International Trade: (4 marks)

Requests for payment before goods are delivered .......................
Shows ownership or title of goods imported .............................
Shows the country of manufacture of goods ..............................
Shows the transportation charges for goods ..............................

Expected Response

The documents described by the given statements are:

Proforma invoice
Bill of lading
Certificate of origin
Freight note

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Explain five disadvantages that a country may face if she restricted trade with other countries. (10 marks)

5/12/2020

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Reduced competition — Leading to low quality goods/ services
Reduced/ low consumer goods — trade restriction reduces the availability of goods/ services available to consumer leading to low state of living.
Retaliation/ trading partners are likely to retaliate — leading to loss of business (between two involved/ reduced export/ imports)
Reduced/ low investment — due to limited trading opportunities
Reduced limited market — hence under exploitation of available resources/reduced production capacity.
Inappropriate allocation of resources — it may force the use her resources in areas where she has no comparative interest/ not best suited in.
Cost to the government — (This may happen) f measures are used (to enhance restriction / by encouraging import substitution) meet part of the costs.
Reduced/ loss of government revenue earned from import/ export services not exported.
Leads to increased unemployment due to reduced trading activities.
Poor international relations which may lead to conflicts/ friction, among countries/ may not get assistance in times of calamities.
Curtailed transfer of technology/ factors of production that may lead to poor quality goods low quantity of products.
Reduced/ limited supply of goods/ services which may adversely affect consumers (access /examples of adverse effect as explanation)
Encourages smuggling/ black marketing leading to loss of revenue/ entry of counterfeit goods/ services.

Explain five disadvantages that a country may face if she restricted trade with other countries

World Trade Center Shining brightly through the misty fog over lower Manhattan. [Courtesy of Michael Elliott]

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Explain five circumstances under which a country may realise surplus in its balance of payments. (10 marks)

29/11/2020

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Circumstances under which a country may realise surplus in its balance of payments

Circumstances under which a country may realize surplus in its balance of payment include:

When the country exports highly valued finished products.
The demand for such products is high and they fetch higher prices in the international market.
When the country mainly imports lowly valued primary goods.
These cheap imports are converted into finished goods hence earning profits from international trade.
When the country aggressively promotes its exports.
This will create more market for exporting goods thus increasing the country’s earnings.
When the country devalues its currency.
This makes imports more expensive forcing local consumers to by locally produced goods while exports become cheaper and are sold in large volumes.
When the country enjoys favourable economic order.
The country may be able to influence the world market prices to favour its exports.
When the country diversifies its exports.
The country increases the range of its exports hence becoming more competitive.
When the country has access to adequate capital and technology.
This makes the country to have a highly developed manufacturing and processing sector.

Circumstances under which a country may realise surplus in its balance of payments

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Outline four ways in which the balance of payments of a country may be improved. (4 marks)

27/11/2020

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Ways in which the balance of payments of a country may be improved

Ways in which the balance of payment of a country may be improved include:

Restriction of imports.
Diversification of exports.
Export promotion.
Devaluation of the country’s currency.
Deflation/reduced money supply.
Value addition to increase the value of the exports.
Encouraging foreign investments to the country.
Restricting outflow of capital.

Outline four ways in which the balance of payments of a country may be improved

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ExpIan five measures that may be taken to increase the volume of exports

2/6/2020

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Measures that can be taken to increase the volume of exports

Export compensation scheme where exporters are allowed to claim a certain amoint /percentage of the value of the exports to enable exporters sell at a lower price
Diversifying foreign markets to expand the market for exports /this increases the selling opportunity for local products in the countries
Devaluation of a country's currency which makes its exports cheaper /more attractive to foreign buyers
Encourage (foreign)investments in the country that is geared towards production of goods for exports
Lobbying for removal of trade restrictions /barriers increased by trading partners on the country's exports
Reduction of bureaucracy In acquisition of exports licences this makes it attractive to engage in foreign trade
Use of commercial attaches /government agencies to promote country's exports abroad

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Highlight four functions of the Department of External Trade in the Ministry of Industry, Trade and Cooperatives.

31/5/2020

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Answer

Functions of the Department of external trade in the ministry of Industry, Trade and Co-operatives include:

Develop bilateral and multilateral trade agreements to accord Preferential treatment to Kenyan exports.
Educating Kenyan exporters on trade regulations and practices in other countries.
Intervene on behalf of Kenyan traders in between Kenyan traders and foreign clients.
Arrange for trade fairs, shows and exhibition for Kenyan goods in foreign countries
Expand and diversity foreign markets for Kenyan goods
Inform Kenyan producers available selling opportunities in other countries.

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State the circumstance under which each of the following terms of trade would be applied in foreign trade.

30/5/2020

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Franco
Ex-works
In Bond
Free Alongside Ship

Answer

Circumstances under which each of the terms of trade would be
applied in foreign trade are:

Franco: when the price quoted covers all expenses till goods reach the premises of the buyer
Ex-works: when the price quoted only covers the fraction and while they are within the manufacturer’s warehouse.
In bond: when the prices quoted covers all expenses until goods are delivered in a bonded warehouse in the country of destination.
Free alongside ship (F.A): Where the price quoted cover all expenses to the point where the goods are next to the ship.

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Factors influencing decisions on what goods and services to produce.

Reasons justifying the use of economic barriers to control free trade.

Name four possible barriers to international trade. (4mks)

Explain five benefits that Kenya may get as a member of C.O.M.E.S.A.

Explain five disadvantages that a country would suffer if she restricted trade with other countries.

Disadvantages that a developing country may suffer by liberalizing foreign trade

Outline four reasons why countries may trade with each other.

Explain five factors that an entrepreneur would consider when evaluating a business idea.

State the meaning of the following terms of sale as used in international trade:LOCO,C.I.F,F.A.S and F.O.Q

Explain five measures that the government may take to improve the volume of exports

Outline four ways in which commercial attaches may promote trade between their country and other countries

Explain six circumstances under which a country may restrict international trade.

Benefits which may accrue to Kenya by being a member of the African Development Bank (AFDB)

State four reasons why countries may decide to trade with each other.

Explain five disadvantages that a country may experience from imposing trade restrictions on trading partners.

Expected Response

Circumstances under which a country may realise surplus in its balance of payments

Ways in which the balance of payments of a country may be improved

Answer

Answer

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